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Dubai residential property market sees first annual real estate price rise

Prices have now risen 4% since the last quarter of 2009 creating confidence that the downturn which resulted in price falls of 50% in some locations is now at an end. It is also the first annual increases since the emirate’s property market collapsed towards the end of 2008.
The average house price in the first quarter of the year was AED1,061 ($288.85) per square foot, compared to AED 1,022 ($278.23) in the fourth quarter of 2009, according to the report from Colliers International.
Apartment prices in the emirate rose 6% in the first quarter compared with the previous three months and villa prices increased 2% while townhouses were down 4%, the house price index showed.
Prices have now returned to 2007 levels, but the report warns that a large number of new units due for release could have a negative impact on the real estate market and even bring prices down again.
The report estimates that 41,000 residential units will flood onto the market in 2010 mostly in the low to middle income segments and demand is not expected to match the growth in supply, creating downward pressure on property prices.
‘Despite the stability that the market appears to have achieved, a number of concerns remain. There will be significant oversupply in the market by the end of the year so it is anticipated the index will experience fluctuations in value going forward,’ said Ian Albert, regional director at Colliers International.
‘What will be important to watch is how much of that supply matches the end user demand for community oriented developments,’ he added.
A key to recovery will be financing, the report points out. Numerous banks and mortgage providers increased their loan-to-value ratio to between 75 and 90% in the first quarter and some also lowered interest rates on mortgages to between 6.5 and 8.5%, it found.
But the report added; ‘Banks remain selective in offering finance, providing it against specific projects, mainly completed or near completion, and only to borrowers who can meet the strict lending criteria adopted by most banks’.
The change of demand from speculative investors to end- users places more importance on the ‘liveability’ aspect and there will be better demand and greater stability for projects that offer a community lifestyle, according to the report.